French mobile and Internet company Iliad intends to bid for a larger stake in T-Mobile US (NYSE:TMUS), as Iliad nears a self-imposed deadline to improve an offer for the carrier, according to a Bloomberg report.
In late July, Iliad made its initial $15 billion bid for 56.6 percent of T-Mobile, valuing the carrier at $33 per share, which T-Mobile parent Deutsche Telekom said was too low. According to the Bloomberg report, which cited unnamed sources familiar with the matter, Iliad still plans to price its offer at $33 per share but it will be for a "significantly larger" stake in T-Mobile. Iliad has reportedly set a deadline of mid-October to either make an improved offer to take control of T-Mobile or abandon its pursuit.
DT still controls around 66 percent of publicly-traded T-Mobile, and according to Bloomberg is in regular but informal contact with Iliad, and has not decided whether a new offer for a larger stake in T-Mobile at the same price would be sufficient. Iliad, controlled by billionaire entrepreneur Xavier Niel, is pushing the idea that such an offer would give DT more cash and a smaller stake in T-Mobile. DT views T-Mobile as valued at least at $35 per share, the report said.
Iliad and T-Mobile declined to comment, according to Bloomberg.
However, a report from Reuters earlier this week indicated that, according to unnamed sources familiar with the matter, DT is preparing for the possibility of keeping its investment in T-Mobile for at least another year amid concerns that Iliad will not improve its offer enough. DT also reportedly doubts Iliad's claim that it can deliver annual savings of $2 billion if it took over T-Mobile.
Recent reports have indicated that Iliad is currently in talks with several U.S. banks to help fund an improved offer. The company is also looking to work with private equity funds, including buyout firm KKR, to raise about $5 billion to $6.5 billion.
DT may wait until after the AWS-3 spectrum auction, which starts Nov. 13, before making any strategic decisions about T-Mobile, reports have said. Companies cannot consult with each other deals ahead of the auction due to anti-collusion rules.
DT has been seeking to exit the market for years, first in a failed merger with AT&T (NYSE: T) in 2011 that was blocked by regulators and ultimately abandoned by both companies. Sprint (NYSE: S) parent SoftBank reportedly negotiated with DT and T-Mobile for close to a year to merge the two carriers, but the talks faltered this summer amid opposition from regulators, especially at the FCC.
T-Mobile accounts for around a third of DT's sales and a fifth of its core profits, but has long been a drag on the parent company's cash flows. However, T-Mobile has seen surging subscriber growth the last five quarters and it is rapidly building outs its LTE network, which could enhance the value of the business over time.
"Basically Deutsche Telekom thinks that if there is not going to be an in-market consolidation deal in the U.S., which would generate huge synergies and change the structure of the market, then perhaps they are better off keeping the business and trying to realize themselves the upside potential that Niel thinks is there," one person close to DT told Reuters. "This is why things have gotten bogged down."
For more:
- see this Bloomberg article
- see this Reuters article
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Iliad remains open to improving its bid for T-Mobile US